Europe's car industry on bad patch of road


GOTENBURG, Sweden - The European auto industry is facing trouble from all sides.

Sales are worsening domestically, and companies that export to the United States are earning less money because the dollar is weak. And though big players such as Adam Opel AG and Fiat SpA are losing money, they can't afford to stop investing in new products, because everyone else is.

A decline in sales volume is accelerating. From May 2001 to May of this year, sales were down 8 percent in Europe and 14 percent in Germany, Europe's biggest market. Yet, aside from Jaguar's recent decision not to produce the F-type roadster, the European industry is continuing to invest billions of euros in new cars.

"We promised at [the 2000 Geneva auto show] that we would deliver 45 vehicles in the next five years," said Martin Leach, the product developer who officially takes over Ford of Europe on Aug. 1. "We're on track."

High-volume automakers Opel and Fiat, which are losing money, have to borrow to develop new products and must pay back the money with interest. General Motors Corp. subsidiary Opel says it won't see black ink until the second half of next year, and Fiat will be at least a year longer.

Other high-volume European automakers have fared better, though all saw sales fall in May. Renault SA, PSA Peugeot-Citroen, Ford of Europe and Volkswagen AG have had positive momentum in recent years. Renault's strength has been its successful alliance with Nissan Motor Co., while PSA and Volkswagen have had successful multibrand strategies and leadership in the fast-growing diesel engine business. Ford returned to profitability last year after closing several plants and scoring a hit with the Focus.

Meanwhile, the luxury brands such as BMW, Mercedes-Benz, AB Volvo and Audi AG face their own problems as the U.S. dollar gets weaker.

"Volvo has always been very dependent on the dollar," said Volvo chief executive Hans-Olov Olsson at the Automotive News Europe Congress last week. "A strong dollar helps the business, I must say."

On a global basis, profitability fell 25 percent last year for automakers and suppliers, while global production dropped only 3.7 percent, said industry consultant Steve Young of A.T. Kearney. That indicates many companies had been buying market share unprofitably, he said.

Fiat's problems have been well documented, and turning the company around depends in large part on the group selling off enough assets to cut its $6 billion debt in half.

Auto sales were down 22 percent last month, and the company must spend cash to market cars like the brand-new Fiat Stilo, whose sales have been disappointing.

The new chief executive officer of Fiat Auto, Giancarlo Boschetti, canceled his appearance at the Automotive News Europe event. A few days earlier, he appeared before a government committee to warn that losses would continue into 2004.

Opel has been trying to turn itself around since last summer, when its new chairman, Carl-Peter Forster, initiated the Olympia program. The goal is to cut costs while investing in new products and repairing labor-management relations.

By 2006, Opel wants to change its product lineup by introducing more new concepts, such as the small Meriva minivan it will show at Paris this fall, and more low-volume, niche models. "They are more profitable and add more excitement to the brand," Forster said. Opel's strategy includes introducing one to three new vehicles every six months.

But building a new brand image will take four or five years. Meanwhile, cost-cutting is not easy.

The big cost is in purchased components, and previous cost-cutting campaigns have found all the easy savings there.

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad